saleandleaseback

Sale and leaseback is a financial arrangement in which an entity sells an asset to a buyer and immediately leases it back for a defined period. The seller receives cash from the sale but retains the right to use the asset under a lease, while the buyer gains a long-term lease income and ownership of the asset. The structure is commonly used for real estate, equipment, and other capital assets, allowing the seller to unlock liquidity without disrupting operations.

Accounting treatment varies by jurisdiction and standards. Under many frameworks, if the sale transfers control of the asset, the seller derecognizes the asset and records a right-of-use asset and a lease liability. The buyer records the asset and a lease receivable. Classification of the lease (operating vs. finance) and the need to recognize on-balance-sheet obligations depend on indicators such as transfer of controls, term, and purchase options. In recent years, standards like IFRS 16 and ASC 842 have tightened on-balance-sheet recognition for most leases.

Rationale and uses include liquidity generation, balance sheet optimization, and risk management. Lease payments provide predictable expenses, and the arrangement can free capital for growth or debt reduction. Tax treatment varies by jurisdiction; lease payments are typically deductible, while the sale may trigger tax consequences based on gain or loss.

Risks involve ongoing lease commitments, potentially higher total cost of use, credit risk of the counterparty, and reduced flexibility. Real estate sale-and-leasebacks are among the most common forms, but the structure can apply to various asset classes and may include renewal, escalation, or buyback features.